Compensating balance versus discount loan Weathers Catering Supply, Inc., needs to borrow $ 148,000 for 6 months. State Bank has offered to lend the funds at an annual rate of 9.5% subject to a 9.9% compensating balance. (Note: Weathers currently maintains $0 on deposit in State Bank.) Frost Finance Co. has offered to lend the funds at an annual rate of 9.5% with discount-loan terms. The principal of both loans would be payable at maturity as a single sum. a. Calculate the effective annual rate of interest on each loan b. What could Weathers do that would reduce the effective annual rate on the State Bank loan? ---- a. State Bank's semi-annual rate is 1%. (Round to two decimal places.)